Types of Business Ownership (Chapter 1) Flashcards
What is a Sole Trader?
A business entity owned by one person.
What are 3 advantages of a Sole Trader?
- cannot sue or be sued in its own name
- the owner is entitled to all profits
- separate accounting entity
What are 4 disadvantages of a Sole Trader?
- cannot enter contracts
- owner supplies all cash and other assets to the business
- ownerff is legally liable for all debts
- sole traders have no continuity of existence
- not a separate legal entity
What is a Partnership?
An unincorporated business owned by 2-20 (exceptions) or more people with a common view to make a profit.
What are 3 advantages of a Partnership?
- separate accounting entity
- shared ideas and knowledge
- shared workload
What are 3 disadvantages of a Partnership?
- withdrawal/addition of new partner dissolves old partnership
- unlimited liability
- disagreements between partners
What is a Partnership Agreement and why are they important?
A partnership agreement is either a verbal or written legally binding agreement that sets out the important features of a partnership. In the absence of a partner agreement, the legislation specified in The Partnership Act 1895 will apply.
What is a Small Proprietary Company?
A business that has a consolidated revenue of less than $25 million and/or consolidated gross assets worth less than $12.5 million and has 2-50 employees.
What are 3 advantages of a Small Proprietary Company?
- limited liability
- a person can sell shares to leave business
- separate legal and accounting entities
What are 3 disadvantages of a Small Proprietary Company?
- expensive to set up
- profits shared amongst many
- must operate within Corporations Act
When choosing Legal Structure, what 4 factors should one consider?
Size, Tax, Ownership, Liability.
What is a Franchise?
A license that grants a franchisee access to a franchisor’s proprietary business knowledge, processes and trademarks, thus allowing the franchisee to sell a product or service under the franchisor’s business name.
What is a Franchisor?
The original business - it sells the right to use its name and idea.
What is a Franchisee?
Buys the right to sell the franchisor’s goods or services under an existing business model and trademark and established customer base.
What are 3 advantages of a Franchise(e)?
- access to an established company’s brand name
- don’t need to spend resources getting your name and product out to customers
- franchisors offer training and financial planning
What are 3 disadvantages of a Franchise(e)?
- heavy start up costs
- ongoing royalties between 4.6% - 12.5%
- lack of control over territory or creativity with the business
What is a Non-Profit Organisation?
A non-profit organisation is not operating for the profit or gain of its individual members. Any profit goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.
What are 3 advantages of a Non-Profit Organisation?
- inexpensive to incorporate
- few formalities and a low compliance requirements
- may be eligible for tax exemptions
What are 2 disadvantages of a Non-Profit Organisation?
- limited to operating in the state of incorporation
- not closely monitored or regulated so no clear guidelines for operation and for resolving disputes
